Delaware Court of Chancery dismisses simultaneously filed action on forum non conveniens grounds with no showing of overwhelming hardship

2 June 2021 Reed Smith Client Alerts

Inicio Perspectivas Delaware Court of Chancery dismisses simultaneously filed action on forum non conveniens grounds with no showing of overwhelming hardship

In a recent decision from the Delaware Court of Chancery, Sweeney v. RPD Holdings Group, LLC, C.A. No. 2020-0813-SG (Del. Ch. May 27, 2021), the court granted a motion to dismiss on forum non conveniens grounds in favor of defendants’ simultaneously filed action involving substantially the same parties and the same issues, which arise from a common nucleus of operative facts as the Delaware case.

Autores: Brian M. Rostocki Benjamin P. Chapple

Background

The plaintiff in Sweeney v. RPD Holdings Group, LLC was the trustee of a trust (the Trust) that held life insurance policies for three brothers, two living (Frank and Steven) and one deceased (Ronald). The plaintiff brought suit on behalf of the trust and the two brothers Frank and Steven against defendant RPD Holdings Group, LLC (RDP) – an entity through which Ronald held his interest in a corporation jointly owned by the brothers – and defendant Sandra, Ronald’s widow, seeking specific performance of the brothers’ Trust Agreement.

At issue in Sweeney were interests in a family company, Dandrea Holdings, Inc. (the Company), which operates in Vineland, New Jersey. The Company was owned jointly by the brothers (comprising 75 shares of stock, with all three brothers beneficially owning 25 shares). Each brother’s shares were held by a separate Delaware limited liability holding company, and each brother was the sole manager of his respective LLC. Each LLC was in turn “owned” by another trust, presumably for the benefit of each brother. In 2007, the brothers entered into the Trust Agreement. The plaintiff’s theory was that the Trust Agreement was entered into to form a tontine-like structure for the stock ownership.

The plaintiff alleged that under the Trust Agreement, the proceeds of each brother’s life insurance policies would, upon his death, be paid to the decedent’s estate in exchange for the decedent’s shares in the jointly owned corporation, which would be held by the trust for the benefit of the surviving brothers. But Ronald had secretly changed the beneficiary of his life insurance policy to his estate, which received the proceeds, and RPD did not transfer Ronald’s shares in the corporation to the Trust. Frank and Steven provided Sandra, as executrix of Ronald’s estate, with notice of their exercise of a putative call right requiring the transfer of Ronald’s shares. Plaintiff brought suit when Sandra refused to make the transfer.

One day before the plaintiff filed the Delaware action, Sandra filed suit in New Jersey seeking trust records and an accounting. According to Sandra, Ronald had sued Frank and Steven for alleged misfeasance involving the jointly owned corporation and then dismissed the action in return for Frank’s and Steven’s promise to acquire Ronald’s stock; this promise was not honored. Sandra was unaware of the Trust Agreement and was surprised to receive Frank’s and Steven’s notice demanding surrender of the shares. She filed suit when Sweeney would not provide information about the Trust. Sandra later amended the New Jersey complaint to seek interpretation and specific performance of the Trust Agreement, claiming the Trust Agreement required payment of the amount Frank and Steve had promised to pay Ronald in settlement of Ronald’s previous lawsuit. RPD moved to dismiss in favor of the New Jersey action.

The court’s decision

The court granted RPD’s motion to dismiss based on forum non conveniens. In its decision, the court held that the Delaware action and the New Jersey action – although filed one day apart –were simultaneously filed, and, therefore, the case did not invoke the McWane first-filed doctrine. “There is no indication that this action is an attempt to frustrate Sandra’s choice of forum, which is the ill that McWane aims to cure. The actions are, as a practical matter, simultaneous.”

Delaware courts may exercise discretion in determining whether to stay or dismiss a matter in favor of litigation in another jurisdiction:

In the interest of comity and efficiency, I may exercise discretion to stay or dismiss this matter in favor of litigation in another jurisdiction where justice so requires. The simultaneous nature of the actions leads to an analysis under the traditional forum non conveniens rubric.

When applying the forum non conveniens doctrine, Delaware courts consider six factors:

1) the applicability of Delaware law in the action; 2) the relative ease of access to proof; 3) the availability of compulsory process for witnesses; 4) the pendency or non-pendency of any similar actions in other jurisdictions; 5) the possibility of a need to view the premises; and 6) all other practical considerations which would serve to make the trial easy, expeditious and inexpensive. Although the first-filed doctrine was not applicable, the court nonetheless used its discretion to dismiss the Delaware action in favor of the New Jersey action.

The court considered several relevant facts in assessing the defendants’ forum non conveniens argument. Frank and Steven were New Jersey residents, as was Ronald before his death. The Trust Agreement was entered into in New Jersey, the situs of the trust was located New Jersey, Sweeney resides in New Jersey, and all events relevant to the action occurred in New Jersey. The jointly owned corporation is incorporated in Delaware and operates in New Jersey. RPD was formerly a Delaware LLC, but was converted to a New Jersey LLC after this action was filed.

The court ultimately held that dismissal was proper on forum non conveniens grounds. Because there was no first-filed action, the court did not apply a presumption in favor of either New Jersey or Delaware. The court explained that all six factors favored pursuing the litigation in New Jersey, as opposed to Delaware. For example, the actions involved the same parties and issues; all of the parties, witnesses, and evidence resided in New Jersey; the action involved a New Jersey trust and was controlled by New Jersey law; and the action’s only connection with Delaware was that RPD was formerly a Delaware LLC.

Key takeaways

Delaware courts favor efficiency, and forum non conveniens is a critical doctrine aimed at preserving judicial efficiency. Thus, where it is inefficient for simultaneously filed lawsuits to proceed on parallel tracks in Delaware and another forum, Delaware courts may dismiss the action in favor of resolution of the issues by another forum.
Although technically one action is “first-filed” when it is initiated one day prior to another substantially similar action, Sweeney suggests that Delaware courts may view the actions as “simultaneously” filed in assessing forum non conveniens arguments.
Where there is no first-filed action, defendants are not required to show irreparable harm from litigating in Delaware, because deference to the plaintiff’s choice of forum is inapplicable.

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